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Chapter 18 . Other Nonretirement Benefits. Can Be Divided in Three Categories. Payments for time not worked Extra payments to employees Services to employees. Meaning of Highly Compensated Employee. Any employee who is

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chapter 18
Chapter 18

Other Nonretirement Benefits

can be divided in three categories
Can Be Divided in Three Categories
  • Payments for time not worked
  • Extra payments to employees
  • Services to employees
meaning of highly compensated employee
Meaning of Highly Compensated Employee
  • Any employee who is
    • A 5-percent owner of the firm or was a 5 percent owner during the previous year
    • Had compensation from the employer in excess of $90,000 (subject to indexing) during the previous year
meaning of highly compensated employee cont
Meaning of Highly Compensated Employee (cont.)
  • The following benefits in chapter are subject to nondiscrimination rules and cannot discriminate in favor of highly compensated employees
    • Educational assistance
    • Service awards
    • Safety achievement and productivity awards
    • No-additional-cost services
    • Employee discounts
    • Dependent-care assistance
    • Employee assistance
    • Adoption-assistance programs
  • Designed to fit employer objectives and competition
  • Usually a waiting period for new employees
  • Usually an increase in benefit for length of service
  • Carryover of unused days may or may not be allowed
  • Taxed as regular income
  • Number varies by employer
  • Marketing factors and state laws may influence actual holidays taken
personal time off with pay
Personal Time Off With Pay
  • Common reasons include
    • Reserve/National Guard duty
    • Jury duty
    • Funeral (bereavement) leave
    • Sabbatical leave
    • Observation of religious holidays
personal time off without pay
Personal Time Off without Pay
  • Employers may voluntarily allow this for activities such as honeymoons, extended vacations, education leaves
personal time off without pay cont
Personal Time Off without Pay (cont.)
  • Federal legislation
    • Applies to any employer with more than 50 employees within a 75-mile radius
    • Allows employees to take up to 12 weeks leave for the following
      • Birth or adoption of a child
      • Care for ill family member
      • The employee’s own illness
    • Health coverage must be continued during leave as if the worker were still employed
    • Upon return, employee must get old job back or be given an equivalent job
    • Specific requirements about notification and guidance
state laws
State laws
  • More than half the states require employers (other than small employers) to allow leave for reasons such as birth or adoption of a child and the illness of a family member
  • Must comply with these in addition to federal law
uniformed services employment and reemployment rights act
Uniformed Services Employment and Reemployment Rights Act
  • Gives specific rights to an employee who leaves a civilian job for active military duty
supplemental unemployment benefit plans
Supplemental Unemployment Benefit Plans
  • Most common in industries with cyclical unemployment
  • Supplement state unemployment benefits
  • Usually a result of collective bargaining
  • Benefits usually prefunded through a trust financed by employer contributions
educational assistance
Educational Assistance
  • First $5,250 of benefits can be received tax free each year
  • Eligible expenses are tuition, fees, and books; meals and transportation costs cannot be received tax free nor can assistance for graduate-level courses
  • No tax-free benefits for courses involving sports, games or hobbies
moving expense reimbursements
Moving-Expense Reimbursements
  • Benefits may be for expenses associated with:
    • Moving personal possessions
    • Travel and lodging while searching for and moving to a new home
  • Employer-provided benefits are taxable income but employee who itemizes may take a corresponding deduction
suggestion awards
Suggestion Awards
  • For suggestions that improve firm’s operating efficiency
  • Amount often a function of savings to firm
  • Taxed as regular income
service awards
Service Awards
  • For length of service
  • Usually not of great value (for example: flowers, pens)
  • Not taxable if de minimis
productivity and safety achievement awards
Productivity and Safety Achievement Awards
  • Productivity awards are taxable income
  • Safety awards are tax free within limits to some employees
holiday bonuses and gifts
Holiday Bonuses and Gifts
  • Usually small amounts
  • Gifts are tax free if value is small
no additional cost services
No-Additional-Cost Services
  • Services like lodging and transportation that are sold to public in ordinary course of business
  • Not taxable to employees if
    • Nondiscriminatory
    • No significant additional cost or lost revenue to employer
    • Services are in employer’s line of business in which employee works
employee discounts
Employee discounts
  • Generally not taxable if provided on nondiscriminatory basis
  • Not allowed on tax-free basis for purchases of investment property such as securities or real estate
dependent care assistance
Dependent-Care Assistance
  • Increase in use and very popular among employees with children
  • Most plans cover child care
  • Some plans cover eldercare
dependent care assistance cont
Dependent-Care Assistance (cont.)
  • Tax-free within limits
    • $5,000 for single person and married persons filing jointly; $2,500 for married person filing separately
    • Only for children under 13 or for dependent who is unable to care for himself or herself
    • Only for dependent care; not for school costs above kindergarten
    • Special rules apply to highly compensated employees; if not met, they cannot get benefits, but other employees are unaffected
adoption assistance
Adoption Assistance
  • Covers various costs associated with adoption
  • Up to $10,390 per child (subject to indexing) can be received tax free under a qualified program
  • Tax-free benefit is phased out at higher income level
  • Qualified expenses include adoption fees, court and attorney’s costs, and travel and other expenses related to adoption
  • Expenses paid to adopt a spouse’s child or for surrogate parenting arrangements are not qualified expenses nor are expenses to adopt a child with special needs unless the adoption becomes final
wellness programs
Wellness Programs
  • Purpose is to promote well-being of employees and dependents
  • Medical screening programs
    • Sometimes limited to select groups of employees, possibly in form of complete physical
    • Most often in form of screening for conditions that an be discovered in a cost-effective manner (for example: blood pressure, cholesterol, breast cancer); however, programs may also focus on back problems and drug and alcohol abuse
wellness programs cont
Wellness Programs (cont.)
  • Lifestyle management programs
    • Aimed at encouraging persons to change behavior and lead more healthy lives
    • Many programs aimed primarily at minimizing cardiovascular conditions; these programs focus on fitness, weight reduction, nutrition, smoke cessation, and stress management
    • Most effective if designed to also include family members
employee assistance programs
Employee-Assistance Programs
  • Aimed at helping employees with specific problems (for example: alcohol or drug abuse, marital, and financial difficulties, legal problems)
  • Treatment can minimize ultimate medical costs as well as missed work
  • Proper treatment should be provided by a skilled professional
  • Employee will have taxable income if treatment is for a nonmedical condition
financial planning programs for executives
Financial-Planning Programs for Executives
  • Traditionally for top executives but being expanded to middle management
  • Usually done on individual employee basis
  • Components, one or more of which may be provided
    • Compensation planning
    • Preparation of tax returns
    • Estate planning
    • Investment planning
    • Insurance planning
  • May be provided by outside firm or employees of the employer
  • Generally taxable income to employee but some offsetting deductions may be allowed for tax and investment advice
preretirement counseling programs
Preretirement-Counseling Programs
  • Focus is on group, not individual, counseling
  • Types
    • Financial planning
    • Other aspects of retirement such as living arrangements, health, and leisure time
  • May be provided by employer, but often provided by outside organizations
  • Tax-free to employees as long as no specific services provided on an individual basis
transportation free parking
Transportation/Free Parking
  • Forms
    • Free parking
    • Reimbursement for commuting expenses
    • Van pooling
  • Favorable tax treatment is available within limits if certain requirements are met
company cars
Company Cars
  • Tax free if used for business use
  • Personal use results in taxable income, but there are alternatives for determining value
subsidized eating facilities
Subsidized Eating Facilities
  • Can minimize prolonged lunch periods
  • Free meals are tax free if provided for convenience of employer